December 17, 2007

Alan Greenspan: mendacious or merely senile?

Filed under: Affordable Housing,Alan Greenspan,Bailout,Fed,Financial Responsibility,Rant — labordaytheses @ 7:32 am

Excerpt (at length) via Economist’s View:Greenspan Says He Favors a Government Bailout for Homeowners, by Steve Matthews, Bloomberg: Former Federal Reserve Chairman Alan Greenspan said he favors spending U.S. government money to bail out mortgage borrowers who risk losing their homes because they can’t make payments.

Greenspan, speaking on ABC’s ”This Week” program aired today, said cash bailouts, while creating a larger budget deficit, have the advantage of helping homeowners without distorting property prices or interest-rates on mortgages.

”Cash is available and we should use that in larger amounts, as is necessary, to solve the problems of the stress of this,” Greenspan said. ”It’s far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it’ll drag this process out indefinitely.”

Greenspan’s suggested approach differs from that of Treasury Secretary Henry Paulson, who negotiated a freeze on the interest rates of some subprime mortgages without pledging any government money to help homeowners or banks.

The WSJ Economics blog has more. Greenspan is asked next if there needs to be a bias toward activism right now:

It depends what you mean by activism. If you mean doing something that works, absolutely. If you mean doing something just for the sake of perceptions, that’s very costly. I don’t know if [infusing cash] would work, but it would certainly help people — it would help their incomes; it would help their personal state, without affecting the structure of the way markets are behaving and the way adjustment process is going on. It’s very critical that this thing reach a selling climax — if I may put it in other words, exhaust itself. It’s only when the markets are perceived to have exhausted themselves on the downside that they turn. Trying to prevent them from going down just merely prolongs the agony.


Cross-posting the comment I posted there as I so rarely have time to update this blog these days


Seriously? We’re expected to take advice on how to fix the mortgage mess from one of its principal architects?

I have just 3 questions for Alan:

1) Exactly whose “cash is available” please? I have a sneaking suspicion Alan is offering to let me and the rest of the little people who pay taxes pick up the tab for his mortgage mess. I, however, am a little strapped and need to use my savings to pay my expenses which have more than doubled since 2000 (weird, I know, since inflation is so benign)

2) Can someone please explain how handing out cash to the weak hands in the market will help us get the “selling climax” correction that even AG acknowledges is necessary over with faster? I admit to not being an economist, but it sounds like a surefire recipe for *prolonging* the correction to me.

3) Where, in all of this, is the concern for prudent, hard-working families who can no longer afford homes because institutional bubble blowers have allowed property prices to get so wildly out of touch with reality?

I’ve said it before, and I will say it one more time here: this crisis is, at its root, an affordability crisis. People with good jobs and good savings can no longer afford to buy a home for their family in many parts of this country. Absent socialism, we have exactly two options for fixing this – – incomes can rise a *lot* or prices can drop a *lot.* That’s it – there are no other real solutions.

I think it’s high time the geniuses who got us into this mess step out of the way and let the free-market they ostensibly worship do what it’s designed to do — determine appropriate prices.


September 10, 2007

American opposition to a taxpayer bailout of reckless real estate speculators

Couple people asked for this in the discussion of NINJA loans over at Barry Ritholtz’s blog.

Original Opinion Dynamics/Fox News poll showing 70% opposition to a bailout of “homeowners” and 80% opposition to a bailout of brokers and banks is here.

Some anecdotal evidence showing even higher opposition here in SoCal is here and here.


September 8, 2007

Mortgage Bailout Scam question of the day

Via Nourial Roubini’s blog:

These are some of the complex and difficult issues that analysts and policy makers are starting to address. Bill Gross of Pimco is now proposing the creation of a fiscal institution like the RTC (that resolved the S&L banking crisis of the late 1980s and early 1990s) – what he called the Reconstruction Mortgage Corporation – to resolve the subprime credit problems. While this may sound as a fiscal bailout of borrowers (and by default of lenders) the alternative in his view is destructive home price deflation (as much as 10% fall in home prices in his view) and million of homeowners ending up in foreclosure. Folks at Goldman Sachs are actually predicting that home prices will fall as much as 15% in the next few years before they bottom out.

Home prices in my neighborhood in Southern California increased, on average, more than 150% between 2001 and 2006, with no corresponding increase in average income. Can someone please tell me why > 25% YOY gains for 5 years straight is considered peachy, but a subsequent 10% decline is a disaster of such epic proportions that it merits the biggest bailout in government history?

September 3, 2007

Ant’s Labor Day Theses

From: The Worker Ants of the U.S. Economy

To: The Grasshoppers and Ruling Class Politicians who support them



  • Calling people who got 110% LTV interest-only loans to buy houses “homeowners” is ridiculous and insults the intelligence of anyone who can count.
  • The correct term for these people is “over-leveraged real estate speculators”
  • Calling financial services conglomerates that issued 110% LTV interest-only loans to people who couldn’t possibly repay them unless prices continued to skyrocket “distressed lenders” is equally ridiculous.
  • The correct term for these institutions is “over-leveraged real estate speculators”

Politics – New Rules

  • Politicians currently stumbling all over themselves to get on tv to talk about their shock and dismay with “reckless”, “irresponsible” and predatory lending are required to state at the outset of any interviews their reason for not being concerned with this problem back when there was still time to actually do something about it.
  • Politicians from New York and New York bedroom communiities are not allowed to demagogue on behalf of “homeowners”, period, without first returning all campaign contributions from hedge fund managers who live in their districts.
  • Senator Chris Dodd, in particular, must make the following truth in advertising disclaimer prior to all public comments on the subject of subprime lending. “My name is Chris Dodd and I’m a whore for the financial services industry.
  • While we’re at it, it would save a lot of time if politicians just wore sports jerseys naming their corporate sponsors (like Nascar drivers do) to make it easier to tell who they work for.

The Economy

  • At it’s root the “mortgage crisis” is nothing more than an affordability crisis.  Put simply, people with good jobs, good savings and good credit can no longer afford to purchase a home in many parts of this country without taking on a suicide loan.
  • There are exactly two ways this situation can be corrected in a free market – prices have to drop or incomes have to rise.  A lot.
  • Contrary to popular belief, a housing price contraction is one of the best possible things that could happen for the long term health of the American economy.
  • Those who dispute that fact please answer this question:  pretend you’re a 30 year old software engineer (one of the few industries where America still makes something that the rest of the world wants to buy, and has a positive balance of trade) working in Silicon Valley and competing with engineers in Bangalore and Bulgaria who can live handsomely on $10/hr.  Does being forced to pay 1 million dollars for a starter home make you more or less competitive in the global economy?

A quick note re: taxes

Filed under: Financial Responsibility,Taxes — labordaytheses @ 1:13 am

Ants are some of the most productive members of society, and since money you make from hard work is taxed much more heavily than money you make from sitting around on your ass and collecting interest, or sitting on your ass and inheriting it, we actually pay a lot more than our fair share. We do it anyway because we know our tax dollars are needed to repair our crumbling infrastructure and support critical services.

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